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GBC Reports Q4 Results: Sales Down Slightly for Year, Gross Margin Improves

Friday, February 07, 2003

Press release from the issuing company

NORTHBROOK, Ill.--Feb. 6, 2003--General Binding Corporation today announced results for the fourth quarter and full year 2002 reflecting improvements in margins, adjusted EBITDA and debt levels resulting from ongoing success in the implementation of its Operational Excellence Program, despite slightly lower total sales related to the weak economy. Sales in the fourth quarter totaled $179.2 million, up $18.7 million or 11.7% from the fourth quarter of 2001. The gross profit margin for the quarter, before special charges, increased 1.1 points over the prior period to 40.8%, the highest quarterly margin of the year. Cash flow, as measured by adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and certain special items), grew $6.3 million to $22.8 million (12.7% of sales), compared to adjusted EBITDA of $16.6 million (10.3% of sales) for the same period last year. For the full year 2002, the Company reported sales of $701.7 million, down $10.2 million, or 1.4%, from the prior year. The gross profit margin, before special charges, increased by 0.8 points to 39.7% from the 38.9% reported last year. Cash flow, as measured by adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and certain special items), was $81.5 million (11.6% of sales), compared to adjusted EBITDA of $76.5 million (10.7% of sales) for the prior year. "Although our sales were down slightly from the prior year in the face of a stagnant economy, our focus on enhancing the profitability of our product lines, streamlining our worldwide infrastructure, and generating cash led to meaningful improvements in our gross profit and operating expense margins, EBITDA, and leverage. We began to see some positive sales trends at mid-year, and we ended the year with a fairly solid fourth quarter," said Dennis Martin, Chairman of the Board, President and CEO. Update on Operational Excellence Program "In 2002, our focus centered on the implementation of our Operational Excellence Program," continued Mr. Martin. This Program was designed to significantly improve profitability and operational efficiencies across our businesses and to strengthen our financial flexibility, and I am pleased to say that the organization did a great job of executing these initiatives." Goals of the Operational Excellence Program include: * Focus on greater profitability and long-term revenue growth, * Streamline and improve worldwide infrastructure, and * Generate cash to increase financial flexibility. "The Operational Excellence Program has produced positive results in 2002 and is tracking with our expectations. We expect to see further improvements in operational and financial performance in 2003 resulting from the Program. These savings are important in that they have not only helped offset the effects of our challenging sales environment, but they are helping to fund investments related to new sales, marketing and product development initiatives. These increased investments will provide a solid foundation for revenue growth in years ahead, particularly in some of the new mass market and education sales channels that we are focusing on and beginning to have success with." Strategic Realignment of Organizational Structure Another significant accomplishment during the year was the strategic realignment of three of the Company's four primary business units into two new groups: * Commercial and Consumer Group (combination of the Document Finishing Group, Office Products Group, and the Education division). This combined group will focus on branding and marketing strategies that leverage GBC's leadership among customers of its binding, laminating and information-display products in the work, school and home environments. * Industrial and Print Finishing Group (combination of the Films Group and the Automated Finishing division). This combined group will target print-for-pay and other finishing customers who use GBC's professional-grade finishing equipment and supplies. "These strategic moves, which closely realign marketing, sales and support functions around our customers and eliminate operational overlap, are important parts of our Operational Excellence Program," Mr. Martin added, "and they should significantly help improve our performance and create opportunities for continued, profitable growth." Outlook for 2003 "We are coming out of 2002 with some good momentum," Mr. Martin continued. "While we do not forecast any significant improvement in the economy in 2003, we are beginning to see some of the positive effects of our increased investments in sales, marketing and new product development. As a result of these programs and several pricing initiatives that are already in place this year, we feel that we can generate a moderate increase in revenues in 2003. However, an adverse change in the economy, as well as any implementation difficulties associated with the roll-out of the new go-to-market strategies in the Commercial and Consumer Group, could have a negative impact on this forecast. EBITDA should benefit from our revenue growth, as well as the full-year impact of various Operational Excellence Program initiatives started last year, and is expected to grow by an amount similar to that in 2002. Regarding our leverage position, GBC has always done a good job of reducing debt as a result of focusing on working capital and the generation of free cash flows, and we expect continued improvement again in 2003. In addition, driven by improvements in our profitability and debt level, we expect to refinance our primary credit facility later this year which should materially reduce our interest expense and increase our operational flexibility." "In summary, we are encouraged by the progress of our Operational Excellence Program, and also by the continuation of the positive trends developing over the last few quarters, especially in the former Office Products Group. Our efforts in 2003 will reflect a balancing of initiatives directed towards three primary goals of profitable long-term revenue growth, continuing operational improvement and financial flexibility. These goals will undoubtedly be affected by the challenging economic environment, but we expect to benefit from expanded sales and marketing initiatives, new product introductions, the strategic realignment of the Commercial and Consumer and the Industrial and Print Finishing Groups, and the continuing implementation of the Operational Excellence Program. Collectively, these efforts, coupled with our leading worldwide market positions and strong customer relationships, position us well to deliver material improvements in performance and long-term shareholder value as we move through the year." Fourth Quarter and Full Year 2002 Results Fourth Quarter * Sales in the quarter totaled $179.2 million, up $18.7 million or 11.7% from the fourth quarter of 2001. All of the Company's business units reported stronger sales in the quarter over prior year. Most of the improvement was in the Office Products Group which reported a sales increase of $11.2 million, or 22.1%. The increase, which was impacted by a weak prior year comparison, was helped by an increase in sales to commercial and contract stationers customers. * The Company's gross profit margin for the quarter, before special charges, increased 1.1 points over the prior period to 40.8%, the highest quarterly margin of the year. * Selling, service and administrative expenses were basically flat in the quarter compared to prior year, despite the higher sales. * Interest expense in the quarter totaled $9.6 million, up $1.1 million due to a higher interest margin paid during the quarter over the prior year, which was partially offset by a lower average debt level. * Special charges included in the quarter totaled $2.3 million ($0.09 per share), and were primarily related to severance expenses arising from the restructuring and integration efforts in the Commercial and Consumer Group and the Industrial and Print Finishing Group. The prior year's results included special charges of $16.7 million, or $0.83 per share. * Net income of $0.20 per share was reported in the quarter, compared to a net loss of $(0.88) per share last year. Excluding special charges, net income for the quarter was $0.29 per share. On a comparable basis, net income of $0.05 per share was reported in the fourth quarter of 2001, excluding special charges of $0.83 per share and goodwill amortization of $0.10 per share. * Cash flow, as measured by adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and certain special items, all as specifically defined in the Company's primary credit facility), was up $6.3 million to $22.8 million (12.7% of sales), compared to adjusted EBITDA of $16.6 million (10.3% of sales) for the prior year. * Total net debt at the end of the quarter, adjusted for cash and equivalents, was $323.2 million, down $10.4 million from the net balance at the beginning of the quarter. Full Year 2002 * Sales totaled $701.7 million, down $10.2 million, or 1.4%, from the prior year. The bulk of the decline occurred in the Document Finishing and Films Groups due to lower capital spending by customers on certain binding and laminating equipment and on continued weakness in the publishing industry. The Office Products Group reported an overall increase in sales of $9.0 million, or 4%, over the prior year. The increase, which was impacted by a weak prior year comparison, was helped by new product introductions and improved penetration in new distribution channels. * The Company's gross profit margin before special charges increased by 0.8 points to 39.7% from the 38.9% reported last year, primarily as a result of selective price increases and the Operational Excellence Program. * Selling, service and administrative expenses were down approximately $5.4 million in 2002 as a result of lower variable selling expenses and Operational Excellence improvements. * Interest expense for the year was $39.9 million, up $2.7 million from 2001 due to a higher interest margin paid during the year, which was partially offset by a lower average debt level during 2002. * The results for the year included special charges of $12.4 million ($0.55 per share), as well as a non-cash charge of $79.0 million, or $4.98 per share, related to the January 1, 2002 adoption of SFAS No. 142, "Goodwill and Other Intangible Assets." The prior year's results included special charges of $25.0 million ($1.27 per share). Note that special charges are reflected in sales, cost of sales, restructuring expenses, and other operating expenses. * A net loss of $(5.04) per share was recorded in 2002, compared to a net loss of $(1.24) per share in 2001. Excluding special charges and the effect of SFAS No. 142, net income was $0.49 per share in 2002. On a comparable basis, net income for 2001 was $0.52 per share, excluding special charges of $1.27 per share and goodwill amortization of $0.49 per share. * Cash flow, as measured by adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and certain special items, all as specifically defined in the Company's primary credit facility), was $81.5 million (11.6% of sales), compared to adjusted EBITDA of $76.5 million (10.7% of sales) for the prior year. * Total net debt at the end of the year, adjusted for cash and equivalents, was $323.2 million, reflecting a reduction of $35.4 million from the prior year-end. As a result of this debt reduction, the Company has reduced the size of its primary credit facility by $40 million since the beginning of the year, from $290 million to $250 million.

 

 

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